The economic system is compromised!

The capitalist system, if it is run efficiently, is a very important method of allocating scarce resources in balance with the boundaries of the universe it inhabits. We have corrupted the machine and rendered it incapable of adjusting to change.

Not many people really understand the problems we face today.  In terms of the monetary capitalist construct we inhabit, these are twofold:

Number 1

We live in an economic system that has become increasingly dependent on growing consumption, which also means a growing population, incomes, desire, appetite and ability to produce more and more.

We look at the buildings, the roads, the technology and we are reassured: this is solid!   The problem is that all these assets have a value and the value is dependent on growth, and if we have no growth, their values collapse.   But, it is not just a question of collapsing values, since we could cope with that for a while.  The problem is that we live in a distorted monetary system, a system in which debt, which has built up significantly over successive generations, is a heavy and dynamic counterbalance.  If asset values fall in response to low or non existent growth, then the total level of debt must also fall.  The problem with this is that debt revaluation and default fall back through the financial system, a system which has become heavily leveraged.

We are trapped within a system which by virtue of our own excess lies at the mercy of itself.   In a low growth environment asset values need to be supported in order to keep the financial system chugging along.  But, in the absence of a reversal of fortune, this can only delay the inevitable adjustment.

Number 2

Secondly, few really appreciate that the economic system we live in is effectively a single body dependent on the health of the sum of the parts.  The vast inequalities in income and wealth we have developed are cutting off the blood flow to vast areas of this machine.  That this structural imbalance is represented in the increasing accumulation of assets amongst the super wealthy creates an additional and significant weakness and feedback loop of those weaknesses to the heart of the system.

The monetary economic body depends on efficient allocation of resources and the use of those resources to function efficiently.   The build of assets relative to GDP and the build up of debt is a sign of structural weakness and a portent of economic and financial collapse in an era of slow to non existent growth.

The capitalist system if it is run efficiently is a very important method of allocating scarce resources in balance with the boundaries of the universe it inhabits.   We have corrupted the machine and rendered it incapable of adjusting to change.         

Leave a Reply